Erdoğan arranges more government spending before elections in Turkey - FT columnist

In the months ahead, analysts expect Erdoğan to unveil another huge rise in the minimum wage, as well as an increase in public sector salaries, giveaways for pensioners and cheap loans to homes and businesses in an effort to win back the support of wavering former supporters, Laura Pitel said in an article published on Wednesday by Financil Times.

A full reproduction of the article follows below:

In the four weeks since President Recep Tayyip Erdoğan unveiled what he called “the biggest social housing project in the history of the Turkish republic”, more than 7mn people have flocked to sign up. Work on the first of the promised 500,000-strong raft of new homes is set to begin later this month, with the first foundations put in place just as Erdoğan begins gearing up for critical elections. 

Analysts and Turkish opposition officials see the $50bn state-subsidised project — aimed at helping low-income families get on the housing ladder — as one of the opening salvos of a huge spending campaign in the run-up to the vote, which is set to be the toughest contest faced by Erdoğan during his almost 20 years in power.

Government spending plans outlined last month show that, while the Treasury ran a roughly balanced budget for the first nine months of 2022, it plans to end the year with a deficit of about TL460bn ($25bn) — a figure akin to about 3 per cent of gross domestic product. That points to a huge spending spree.

“I’m expecting them to do everything in their power, beyond anything they have done in the past, because these are extremely high-stake elections,” said Gülçin Özkan, a professor of finance at King’s College London. “Nothing would surprise me in terms of the size of the fiscal package or the size of the credit guarantees.”

Turkey’s minister for environment and urban planning, Murat Kurum, rejects the suggestion that the housing scheme is electioneering. “This is not a project that we have done because of worries or thoughts about the upcoming elections,” he told the FT in an interview. “On the contrary, we have always listened to the needs of our citizens.”

Housing has become out of reach for many lower-income families as prices soared 53 per cent year on year in July in real terms, according to central bank data. The project, which will offer low-income citizens a subsidised payment plan starting at TL2,280 ($120) a month, will see new homes built in all 81 provinces, he said.

Kurum repeatedly declined to say how much the giant home-building programme would cost the government, saying only that some of the costs would be met by TOKİ, the state housing agency that has become a behemoth during Erdoğan’s two decades in power — and generates its own income. The Treasury would also offer “some support”.

But he added that President Erdoğan would continue to roll out a series of big ticket projects, some of which will be announced when he unveils his election manifesto later this month. 

Support for Erdoğan and his Justice and Development party (AKP) has taken a hit in recent years as the country has reeled from a succession of currency crises and inflation that topped an official rate of 80 per cent in September. 

Yet there is some evidence that generous giveaways aimed at cushioning the blow of soaring living costs for households — and strengthening their dependence on the AKP — has some effect. In June this year, 77 per cent of respondents told the Turkish pollster Metropoll that the economy was being badly managed. That figure began to decline in July, after a 30 per cent increase in the minimum wage came into force, just six months after a previous increase of 50 per cent. came into effect. The dissatisfaction with the economy has continued to fall in the months since then.

In the months ahead, analysts expect Erdoğan to unveil another huge rise in the minimum wage, as well as an increase in public sector salaries, giveaways for pensioners and cheap loans to homes and businesses in an effort to win back the support of wavering former supporters. 

The largesse poses challenges for Turkey’s opposition parties, which must convince the public that they would manage the economy better than Erdoğan while also competing with his bumper giveaways.

The opposition has criticised the housing project — claiming variously that it should have been done sooner, that it will never happen, that it is unaffordable and unrealistic and that it is aimed at benefiting Erdoğan’s friends in the construction sector.

Yet Bilge Yılmaz, head of the economy brief for the opposition İYİ party, concedes that Erdoğan actually wants the opposition to attack it. “They’re saying: look, if we win the election, we’re gonna give you this, but if the other guys come, they won’t,” he said. 

Yılmaz argues that “most intelligent citizens” see through such claims. Yet he also believes that some of the poorest voters have become “addicts” of AKP support and are frightened about what would happen to them if the party loses power. 

He says that the İYİ party, which hopes to run the economy if an opposition coalition wins power next year, is building a programme that offers a pathway out of poverty, as well as eye-catching promises such as free breakfast and lunch for every child in public school. But he says that his party “hasn’t managed to do a good job at propagating that stuff”, partly due to the challenges of reaching the public when the media is controlled by Erdoğan.

The impact of a large spending programme on Turkey’s government finances is likely to be manageable. Though the budget deficit has increased in recent years, it still remains low compared to many other emerging markets, with the government forecasting a deficit of 3.4 per cent of GDP this year. The same is true of the country’s overall debt-to-GDP ratio.

But analysts warn of other risks stemming from a huge fiscal stimulus of the kind implied in the budget numbers.

Atilla Yeşilada, an Istanbul-based analyst for the consultancy GlobalSource Partners, says that even if a spending spree delivers “temporary spikes” in Erdoğan’s popularity, it will ultimately backfire by stoking inflation and demand for imports.

That, he argues, would cause a fresh currency crisis of the kind last witnessed in December 2021, when the lira suffered a dramatic plunge. He said: “It would be a miracle for Erdoğan to spend that much money and for inflation not to increase — and the currency to remain stable.”

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